Technology is catching up to the financial industry at a rapid rate. According to a report by KPMG and CBInsights, fintech raised more than $19 billion in the last year.
Originally, financial technology, or fintech as it’s now called, was the term used to describe technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin.
Some members of the financial industry are worried about the effect fintech will have on the financial world, specifically the effect of robo advisors.
A robo advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.
“Advisors are treating it as a potential threat and also a potential opportunity,” said Svi Rosov, an analyst at the CFA institute. “How it impacts advisors will depend on the industry with which they are working.”
A recent CFA Institute survey shows those with the most to worry about are advisors with mass-affluent clients, individuals or households who have $100,000 to $1,000,000 in liquid assets to invest. “The higher the wealth, the more likely that respondents do not think investors will be affected by automated financial advice tools, which are not yet capable of offering complex, tailored advice.”
Robo advisors can benefit investors with more modest portfolios by offering lower fees and lower minimum investments for discretionary portfolio management than traditional advisor and allowing less sophisticated investors more access to advice and product choices.
There are advisors that aren’t so optimistic about all robo advisors have to offer. Michael Krol, CFO and chief service officer at Waldron Private Wealth, refers to fintech as “the second coming of the tech bubble.”
“There are certain things that cannot be robotized,” he said. “There will always be a place for person-to-person advice on important decisions, such as consulting on retirement.”
Despite these reservations there are no doubts about the impressive growth of the fintech movement. By the end of 2015, the U.S. robo advisory market tripled to an estimated $60 billion and is predicted to reach $2 trillion by 2020. With numbers like that, it’s hard to believe we’ll see the end of robo advisors anytime soon.